145;Monetary tightening will compromise growth146;

D Subbarao has maintained that monetary policy would continue to be the first line of defence in controlling inflation.

D Subbarao has maintained that monetary policy would continue to be the first line of defence in controlling inflation. While one might compromise on the momentum of growth, the India story was credible in the long-term, he had told P Vaidyanathan Iyer in an exclusive interview about a week before the RBI8217;s latest quarterly review of monetary policy. Excerpts:

Do you expect a reversal in the inflation rate?

Subbarao: Not for the next few months. An inflation rate of close to 12 per cent is much beyond the tolerance level.

The finance ministry has often said that monetary policy would be the first line of defence to manage inflation. But will a tighter monetary stance not affect growth?

Subbarao:There is a trade-off between growth and inflation. Monetary tightening will inevitably compromise the growth prospects in the short term. But, the long-term growth story will not be hurt. India is still a credible long-term story.

Where do you expect moderation in growth this fiscal?

Subbarao:If you look at our GDP composition, agriculture constitutes 18 per cent. It put up a good performance last year. As far as industry is concerned, there are some concerns in manufacturing as shown by numbers. But there is a lot of investment in the pipeline.Inflation in input prices also means higher profits for some companies. There is no big slowdown in industrial output. In services, which account for 55 per cent of the GDP, some sectors such as transport and travel may be hit.

Curriculum vitae

As the new governor of the Reserve Bank of India, D Subbarao brings to his job a diverse experience in academics and administration 8212; elite degrees, erudite research and governance from ground zero

DUVVURI SUBBARAO

IAS topper of 1972 batch, Andhra Pradesh cadre

Education

IIT Kanpur, MS in Economics, Ohio State University, Ph.D in Economics from Andhra University, Humphrey Fellow at MIT in 1982-83

Work experience

May 1, 2007 to date

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Economic affairs secretary, finance ministry; assumed charge as finance secretary on July 4

2004-2007

Member-secretary, Prime Minister8217;s Economic Advisory Council

1999-2004

Lead economist, World Bank; undertook a flagship study on decentralisation across major countries in East Asia